Committee for a Responsible Federal Budget

A More Detailed Physician Payment Reform Proposal

Jul 23, 2013 | Health Care

After releasing a broad physician payment reform draft, the House Energy and Commerce Committee has released a more fleshed out framework to replace the Sustainable Growth Rate (SGR) formula with a new payment system that better takes into account quality. This draft is also an improvement on the previous one in that it has bipartisan co-sponsors, including Committee Chairman Fred Upton (R-MI) and Ranking Member Henry Waxman (D-FL).

As we have mentioned before, the recent lowering of the cost for repealing the SGR has given lawmakers a sense of urgency to replace it with a new system that rewards quality rather than quantity of services. Although the SGR intended to penalize overutilization of services by physicians, it was a very blunt tool, setting overall Medicare spending targets and punishing or rewarding all physicians based on that aggregate goal. The Committee's initial replacement draft intended to give physician payments an interim period of stable payment increases or freezes and an eventual transition to a new payment system. It was largely silent on the specifics of what the payment updates would be, when the transition would happen, or what the new system would be. The latest draft fills in a lot of these details.

Instead of the SGR's 25 percent cut to payments in 2014, physicians would receive payment increases of 0.5 percent annually through 2018. In 2019, the new payment system would kick in, allowing the underlying 0.5 percent update to be adjusted based on how physicians score in a composite quality measure. The measure would be developed by the Secretary of Health and Human Services and must include at least scores of clinical care, safety, care coordination, patient and caregiver experience, and population health and prevention. Other measures to be included and the weighting of each aspect would be up to the HHS Secretary. Physicians in the top one-third, middle one-third, and bottom one-third of the measure would receive additional payment updates of a one percent increase, no increase, and a one percent decrease, respectively. The legislation also allows physicians to use alternative payment reform models to better deliver care.

While many details have been filled in on the SGR replacement, one key detail remains: pay-fors. Although there is no official CBO score, the budgetary effect would most likely be somewhere in between a permanent freeze in payments and a permanent one percent annual increase, which have been estimated to cost about $140 billion and $175 billion over ten years, respectively. Luckily, there are plenty of options to offset that cost that could also work in conjunction with the physician payment reform to make the health care system more efficient.

It is encouraging to see a bipartisan effort to reform Medicare's physician payment system. While they do so, lawmakers should easily be able to make an SGR repeal bill fiscally responsible.